Macroeconomics- Which Way Now?

Since the controversy between Keynes and Pigou, the main issue in macroeconomics has been whether and why economies mal-function in periods causing variation in growth rates and unemployment (possibly persistent). Related is the question of whether there is a role for economic policy to stabilize the economy, and if so by what means? Do we understand these questions better today than we did say 25 or 50 years ago? Yes, I think we do. Advances in macroeconomics have brought forward important insights on the effects of various types of shocks as well as the role of adjustment failures in price and/or wage formation. The role of other forms of market failures (imperfect competition, imperfect information and incomplete market structures) as well as institutions for macro-economic issues is also much better under-stood today. Hence, even though the basic issues are the same, I think our understanding of these issues has improved. This implies neither that our understanding is complete nor that there is consensus in the profession on key questions like the role of stabilization policy. Neither does the progress made imply that we are approaching a situation where the business cycle can be “controlled”; rather it implies that we better understand why this would be very difficult if not impossible. In the following I would like to outline some of the progress I think has been made in macroeconomics over the last decades. Then I turn to a discussion of the current state of th